102 STAT. 3412

PUBLIC LAW 100-647—NOV. 10, 1988

"(i) surface rights to property the acquisition of
which—

"(I) is necessary to mine mineral rights held on
October 22,1986, and

"(II) is required by a written binding agreement
between the entity and an unrelated person en-
tered into on or before October 22,1986,
"(ii) surface rights to property which are not de-
scribed in clause (i) and which—

"(I) are acquired in an exchange to which section
1031 applies, and

"(II) are necessary to mine mineral rights held
on October 22,1986,

Gifts and "(iii) tangible personal property incidental to the

property. leasing of mineral property and activities incidental

thereto, or

"(iv) part of any required reserves of the entity."

26 USC 671 note. (5) Paragraph (1) of section 646(d) of the Reform Act is amend-

ed by striking out subparagraph (B) and inserting in lieu
thereof:

"(B) for purposes of section 333 of such Code (as so in
effect}—

"(i) any person holding an income interest in such
entity as of such time shall be treated as a qualified
electing shareholder, and

"(ii) the earnings and profits, and the value of money
or stock or securities, of such entity shall be appor-
tioned ratably among persons described in clause (i).
The amendments made by subtitle D of this title and section
1804 of this Act shall not apply to any liquidation under this
paragraph."

(6XA) Paragraph (2) of section 646(d) of the Reform Act is
amended to read as follows:

"(2) TERMINATION OF ELECTION.—If an entity ceases to be
described in subsection (b) or violates any term of the agreement
described in subsection (cX2), the entity shall, for purposes of
the Internal Revenue Code of 1986, be treated as a corporation
for the taxable year in which such cessation or violation occurs
and for all subsequent taxable years/1

(B) Paragraph (3) of section 646(c) of the Reform Act is
amended to read as follows:

"(3) BEGINNING OF PERIOD FOR WHICH ELECTION is IN EFFECT.—
The period during which an election is in effect under this
subsection shall begin on the 1st day of the 1st taxable year
beginning after the date of the enactment of this Act and
following the taxable year in which the election is made."
(7XA) Subsection (e) of section 646 of the Reform Act is
amended to read as follows:

"(e) SPECIAL RULE FOR PERSONS HOLDING INCOME INTERESTS.—In
applying subpart E of part I of subchapter J of chapter 1 of the
Internal Revenue Code of 1986 to any entity to which this section
applies—

"(1) a reversionary interest shall not be taken into account
until it comes into possession, and

"(2) all items of income, gain, loss, deduction, and credit shall
be allocated to persons holding income interests for the period
of the allocation."